TL;DR: The government just changed the rules around negative gearing and capital gains tax, and people have opinions. If you’ve got no idea what any of that means, you’re not alone. Here’s what it actually is, why it matters, and what it might mean for your generation.
If you’ve opened any news app this week, you’ve probably seen the words “negative gearing” thrown around like everyone already knows what they mean. Politicians are arguing about it. Property investors are stressed about it. Your parents might be talking about it at dinner.
But if you’re in your teens or early twenties, there’s a good chance nobody has ever actually explained it to you. So let’s fix that.
First, the housing situation (because you probably already feel this)
Buying a home in Australia right now is genuinely hard. Not “might take a while to save” hard. More like structurally, statistically, generationally hard.
Only 14% of Australian median-income households can currently afford to buy a home. In Sydney, that drops to 10%. Three years ago, it was 43%.
On average, saving a standard 20% deposit now takes nearly 12 years nationally, and more than a decade in Sydney, Adelaide, Brisbane, and Perth. And once you’ve saved it? First home buyers aged 25 to 34 who purchase an entry-level property need to allocate an average of 43% of their after-tax income to mortgage repayments.
Among Australians aged 25 to 29, home ownership rates have fallen to 36%. For context, that’s the lowest it’s been in decades.
This is the world you’re inheriting. And negative gearing is one of the reasons a lot of people think it got this way.
Okay, so what is negative gearing?
Here’s the simple version.
When someone buys an investment property, they become a landlord. They charge rent, which is income. But they also have costs: the mortgage, rates, repairs, and so on.
Negative gearing is when those costs are higher than the rent they’re collecting. So the property is running at a loss.
Now here’s where it gets interesting. Under Australia’s current tax rules, landlords can take that rental loss and use it to reduce their taxable income from their day job or other earnings. So if they earn $120,000 a year and lose $20,000 on their investment property, they only pay tax on $100,000.
The idea was that they’d eventually make money when the property’s value goes up and they sell it. That profit is called a capital gain.
And what’s capital gains tax?
When you sell something for more than you paid for it, the profit is called a capital gain, and you pay tax on it. Simple enough.
But here’s the thing. In Australia, if you’ve held the asset (like a property or shares) for more than 12 months, you’ve historically only been taxed on half of that gain. That’s the 50% capital gains tax (CGT) discount.
So if you bought a property for $500,000 and sold it for $800,000, your gain is $300,000. With the discount, you’d only pay tax on $150,000. For someone in a high-income bracket, that’s a significant saving.
The top 10% of earners collect almost half of all negative gearing tax deductions and three-quarters of concessionally-taxed capital gains. Which is why a lot of people argue the system has mostly benefited people who were already wealthy, at the expense of everyone trying to get into the market.
So what did the government just announce?
This week’s federal budget proposed two big changes, kicking in from 1 July 2027.
The government proposes to limit negative gearing for residential property investments to new builds, replace the 50% capital gains tax discount for individuals, trusts and partnerships with cost base indexation, and introduce a 30% minimum tax rate on capital gains.
In plain English: if you buy an established (existing) home after budget night as an investment, you can no longer use the rental losses to reduce your regular income tax. Those losses can only be offset against rental income or capital gains from other properties.
Investors who buy new builds will still be able to deduct losses from other income, and existing arrangements will remain unchanged for all properties held before budget night.
The capital gains discount is also changing. Instead of paying tax on 50% of your gain, the 50% capital gains tax discount will be replaced by cost base indexation for assets held for more than 12 months, together with a 30% minimum tax on net capital gains. Cost base indexation means the original purchase price is adjusted for inflation before working out the gain — so you’re taxed on your real profit, not the chunk that was just inflation.
Why is it controversial?
Because, depending on who you ask, this is either long overdue or a disaster.
People who support the changes argue that negative gearing has inflated property prices for decades by encouraging investors to outbid first home buyers on established homes. The tax benefit made it worth buying a loss-making property because the write-off against income was so valuable. That meant more competition for the same properties, pushing prices up, and locking younger buyers out.
People who oppose the changes argue that landlords will sell up, reducing the number of rental properties available, which pushes rents even higher. They also argue it will reduce investor confidence in the property market more broadly, slowing construction and making things worse, not better.
The honest answer is that economists genuinely disagree about the impact, and anyone who tells you they know exactly what will happen is probably selling something.
What does this mean for you?
If you’re 15 to 25, you’re probably not buying an investment property anytime soon. But this stuff matters to you for a few reasons.
If rents go up because landlords exit the market, that affects you right now. National rents have already surged 42.9% over five years, and Australian households are dedicating a record 33.4% of their pre-tax income to rent. Any further pressure on the rental market hits young people hardest.
If the changes do reduce investor competition for established homes, that could help first-home buyers get a foothold in the market eventually. That’s the argument for the changes.
And if you’re thinking about your future, understanding how property investment, tax, and wealth building actually work is genuinely useful, regardless of which side of the debate you land on.
The bigger picture
Housing affordability in Australia is a genuinely complex problem with no single villain and no simple fix. Negative gearing is one piece of a much larger puzzle that includes supply constraints, planning laws, population growth, and interest rates.
But what’s clear is that the rules are changing, the conversation is getting louder, and your generation is going to be the one most affected by the decisions being made right now.
Understanding what’s actually being debated is the first step to having a voice in it.
This article is for general information purposes only and does not constitute financial advice. If you have specific questions about your situation, speak to a registered financial adviser.
